Restitution available to abused investors, town hall told

(June 1, 2005) Canada does have an effective restitution process for investors who have been harmed by brokers or financial firms, regulators say. The Ontario Securities Commission held an investor town hall in Toronto on Tuesday night, which attracted more than 400 people.

It may be little-known to most retail investors, but the Ombudsman for Banking Services and Investments (OBSI) has dealt with 238 investment complaints in the last 18 months and has made recommendations for compensation in 54 cases, CEO Mike Lauber said at the public meeting.

The complaint process begins at the firm involved, Lauber explained. If the investor is still not satisfied, they can escalate the complaint to the ombudsman. About 15 to 20% of recent cases have resulted in recommendations that the financial services provider compensate the client for financial losses, according to the OBSI website. The process is confidential, but to date, no financial institution has rejected an OBSI recommendation, Lauber noted.

OBSI will investigate any claim, but cannot currently recommend payment of a sum greater than $350,000, though Lauber said they are considering the possibility of increasing that limit.

The town hall featured the country’s top regulators, including Lauber, OSC chair David Brown, IDA president Joe Oliver and MFDA chief Larry Waite. Stan Buell of the Small Investors Protection Association also sat on the panel.

Though some questions from the audience concerned the structure of the Canadian regulatory system, most of the queries came from investors who had lost money — in some cases the bulk of their savings — and felt they had nowhere to turn. Not true, insisted Brown. “There is somebody out there who has clout and that’s the ombudsman,” he said in response to a suggestion that Canada needs an Elliot Spitzer-type to clean up the system.

“People are giving up before they even start,” added Oliver. “Register that complaint.”

The IDA and the OSC do have powers to fine financial intermediaries and firms and impose bans, but do not reimburse investors for losses, though both organizations made exceptions to that rule in the recent mutual fund market timing probe. OSC settlement agreements with five mutual fund companies (IG, AIC, CI, AGF, Franklin Templeton) will return more than $205 million to investors, while the IDA refunded $7 million to the same five firms, as well as 13 other identified companies.

Still, the town hall made it clear that many investors don’t understand the regulatory system or the complaint process. Brown, who is leaving his position at the end of the month, conceded that regulators may have a “communications problem” and said he wanted to start a public dialogue with retail investors. He promised the OSC would issue a report based on the meeting.

And the long line-up of investors with financial abuse stories came as no surprise to some in the audience. “I think the over-arching theme tonight is that the system is letting investors down,” said Toronto advisor John De Goey.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com